Essays in public economics

The thesis consists of three chapters in public economics. In the first two chapters, we develop theoretical models to show how citizens’ tax evasion and the governor’s embezzlement affect public good provision. In the third chapter, I design an experiment to see how position uncertainty in a sequential public goods game affects contribution levels. In the first chapter, we consider a model that links tax evasion, corruption, and public good provision. In our model, citizens pay or evade taxes into the public fund, which a corrupt governor redistributes. Each citizen forms expectations about the amount of public goods the governor should provide. After ob- serving the actual level of public goods, a citizen punishes the governor if this level is below his expectations. We describe three types of equilibria: tax evasion, efficient public good provision, and symmetric mixed-strategy. We show that the highest expectations can lead to no free-riding (tax evasion) and the efficient level of public good provision even with the corrupt governor and without punishment for tax evasion. The second chapter complements the first chapter by relaxing the assumption of symmetric strategy. In this chapter, we consider a model with two citizens and a governor. First, the citizens decide whether to pay tax or evade. Then, Nature (an independent tax authority) audits one of the citizens randomly, and in case of non-payment, the citizen is fined and are forced to pay the tax. Third, the governor receives the taxes and decides how much public good to provide. Finally, after the governor’s decisions, citizens observe the amount of public good provided and express their opinion on whether the governor embezzled from the public fund or not. More specifically, the citizens guess the correct number of units in the public fund. We formulate this in a four-stage extensive form game. We characterise the Bayesian Nash Equilibrium of this game. Our main result shows that any strategy profile can be a Nash equilibrium for the right choice of the parameter. This suggests that, as a society, we could reach a particular set of outcomes if we set specific restrictions on the parameters (for example, we can set parameters such that there is no tax evasion). By assuming that citizens care about their guesses (i.e. opinions) we can refine our Nash pre- dictions. This gives us three different types of Nash equilibrium. First, we show that if the penalty for evading tax is too low, then both citizens have an incentive to evade tax. Then, we show that if the penalty for evading tax is high enough, and the penalty for embezzlement is low then at least one of the citizens pays tax and the governor embezzles whenever he has the opportunity to do so. Finally, we show that if the penalty for both embezzlement and tax evasion is high enough, we will have efficient public good provision, meaning all citizens pay tax and the governor uses the entire fund to provide the public good. Finally, in the third chapter, I design an experiment to see how position uncertainty in a sequential public goods game affects the level of the contributions. Theory suggests that in a one-shot game among a finite number of self-interested individuals, full cooperation is sustainable (Gallice & Monzón, 2019). This prediction is completely different from the previous theoretical pre- dictions. The experiment consists of two treatments. The first treatment is a sequential public goods game. The second treatment is the game with position uncertainty. The results show that the contributions, at the group level, in each treatment are statistically different

Public Good Provision:A Tale of Tax Evasion and Corruption

We develop a model that links tax evasion, corruption, and public good provision. In our model, citizens pay or evade taxes into the public fund, which a corrupt governor redistributes. Each citizen forms expectations about the amount of public goods the governor should provide. After observing the actual level of public goods, a citizen punishes the governor if this level is below his expectations. We describe three types of equilibria: tax evasion, efficient public good provision, and symmetric mixed-strategy. We show that the highest expectations can lead to no free riding (tax evasion) and the efficient level of public good provision even with the corrupt governor and without punishment for tax evasion

Efficient Public Good Provision in a Multipolar World

We model a public goods game with groups, position uncertainty, and observational learning. Contributions are simultaneous within groups, but groups play sequentially based on their observation of an incomplete sample of past contributions. We show that full cooperation between and within groups is possible with self-interested players on a fixed horizon. Position uncertainty implies the existence of an equilibrium where groups of players conditionally cooperate in the hope of influencing further groups. Conditional cooperation implies that each group member is pivotal, so that efficient simultaneous provision within groups is an equilibrium.Comment: arXiv admin note: text overlap with arXiv:2210.0832

Pricing and Electric Vehicle Charging Equilibria

We study equilibria in an Electric Vehicle (EV) charging game, a cost minimization game inherent to decentralized charging control strategy for EV power demand management. In our model, each user optimizes its total cost which is sum of direct power cost and the indirect dissatisfaction cost. We show that, taking player specific price independent dissatisfaction cost in to account, contrary to popular belief, herding only happens at lower EV uptake. Moreover, this is true for both linear and logistic dissatisfaction functions. We study the question of existence of price profiles to induce a desired equilibrium. We define two types of equilibria, distributed and non-distributed equilibria, and show that under logistic dissatisfaction, only non-distributed equilibria are possible by feasibly setting prices. In linear case, both type of equilibria are possible but price discrimination is necessary to induce distributed equilibria. Finally, we show that in the case of symmetric EV users, mediation cannot improve upon Nash equilibria

Tax Evasion, Embezzlement and Public Good Provision

This paper presents a model that links tax evasion, embezzlement, and the public good provision and suggests how they are interrelated. We characterize the conditions for three types of Nash equilibria: tax evasion, embezzlement, and efficient public good provision

Efficient Public Good Provision in a Multipolar World

We model a public goods game with groups, position uncertainty, and observational learning. Contributions are simultaneous within groups, but groups play sequentially based on their observation of an incomplete sample of past contributions. We show that full cooperation between and within groups is possible with self-interested players on a fixed horizon. Position uncertainty implies the existence of an equilibrium where groups of players conditionally cooperate in the hope of influencing further groups. Conditional cooperation implies that each group member is pivotal, so that efficient simultaneous provision within groups is an equilibrium